The UK Financial Services Authority (FSA) has declared war on sales incentives – a move hailed by brokers.

The regulator’s MD Martin Wheatley says many financial institutions view consumers as people to sell to, rather than provide service to.

“Cultural change is needed and this change can only come from the top of an organisation,” he said. “CEOs are ultimately accountable for the way their staff are incentivised, so we expect them to take a real interest in fixing this.”

British Insurance Brokers’ Association (BIBA) CEO Eric Galbraith has welcomed the crackdown, saying it recognises the role banks have played in mis-selling financial products.

“But the FSA could explore the merits of adopting a similar approach to Canada, where banks are prevented from directly selling general insurance products altogether,” he added. 

“Our sector has been tarnished by the practices of other institutions, whose main business is not insurance and have mis-sold insurance products.”

The FSA conducted research on sales bonuses as part of a new report on the problem.

In one organisation staff could earn a bonus worth 100% of their basic salary for selling loans and personal protection insurance (PPI) – but the bonus went only to those who sold PPI to at least half their customers.

Another ran a “first past the post” system, in which the first 21 sales staff to reach a target earned a “super bonus” of £10,000 ($15,447).

“I find it alarming that particularly risky incentive schemes, with the potential for sales staff to earn significant bonuses without proper safeguards in place, were common across the firms we assessed,” Mr Wheatley said. “Our report must act as a wake-up call to all firms. 

“It sets out the scale of problems we have found and a roadmap to put this right, with clear expectations and proposed guidance to help firms meet our requirements. We expect all firms to read our paper and think how it affects their firm.”

The FSA wants financial services companies to examine their incentive schemes and see if they create mis-selling.

“This marks the start of a program of work to reduce these risks, which the Financial Conduct Authority will take forward,” Mr Wheatley said. “That will involve further supervisory work, involving a wider review of incentive schemes, enforcement proceedings and a possible strengthening of our rules.”  

Mr Galbraith says BIBA agrees the UK needs a strong and profitable financial services industry.

“But this will not be achieved on general insurance unless the regulator recognises that advice is the area of the professional insurance broker and intermediary whose business is insurance, not a bank or other organisation whose main business is not insurance.”